Third-party processors vs. merchant accounts

A third-party processor allows e-commerce businesses to accept online payments without the need for a merchant account of their own. Instead, they let businesses make use of their own merchant account under their terms of service.

How it works

With this type of service, payment processing is outsourced to a third party by the merchant. After the customer has placed the items they want to purchase in the basket, they’re redirected to a checkout page that’s hosted on a third-party service provider’s server.

This way, there’s no need for the merchant to purchase and install payment gateways or SSL certificates. Any sensitive personal data is entered on the third-party server, which means that they’re the ones responsible for handling it securely. PayPal, Amazon Payments, and Google Checkouts are some of the better-known third-party service providers.

The problems with third-party credit card processors

Security

Although third-party payment processors offer security measures, they do not offer as much safety assurance as merchant accounts.

Lack of customer service

Third-party processors’ simple structure is both a blessing and a curse in this case, but the lack of customer support is a definite drawback.

High transaction fees

While you might be saving by using a third-party processor, their transaction fees tend to be significantly more expensive. These fees can be as high as 3%─much higher than your average merchant account rate.

Lack of a sense of professionalism

Using third-party payment processors is not generally as trusted, or viewed as being as secure, as regular merchant accounts.

Do I need a merchant account?

If you consider your business to be your primary occupation and you intend to grow it, it’s a good idea to set up a dedicated online payment processing solution. You can do this either when you set up your online store, or when your processing volumes increase enough to justify it.

Save time and money

With faster payments and automated processing, you’ll save yourself time, hassle, and improve your cash flow. You also don’t have to enter payment details manually on your system.

E-invoicing

Give your customers the flexibility of paying online directly from invoices; you’ll never have to wait for checks to arrive by mail.